Energy Analysts Dismiss ‘Carbon Bubble’ Warning

Date: 19/10/16

Ed Crooks, Financial Times

Oil and gas companies are valued largely on reserves that will be produced over the next 15 years, meaning that their investors are not vulnerable to longer-term changes in energy markets, a leading industry adviser has said.

Daniel Yergin of IHS Markit rejected warnings of a “carbon bubble” that could destabilise financial markets as policies to combat climate change hit fossil fuel producers, saying the transition to renewable energy would take decades and investors would have time to adjust their holdings.

The dangers for financial assets created by climate change have become an increasingl prominent issue for investors. Last year, ministers from the Group of 20 countries instructed the Financial Stability Board of their regulators and policymakers to start looking at the risks and how to address them.

Mark Carney, governor of the Bank of England who chairs the FSB, argued in a speech last year that regulators needed to address the problem now, because “once climate change becomes a defining issue for financial stability, it may already be too late”.

The action by regulators could restrict the flow of capital to oil and gas companies by making it harder for banks and other financial institutions to lend to and invest in the industry.

In a paper published on Wednesday, Mr Yergin argued that the concerns expressed by Mr Carney and others have been overdone, because investors generally look at relatively short time horizons when valuing oil and gas assets.